Economics help?
Evaluate the following argument: “New practices initiated by sellers to differentiate their products are liable to be wasteful from the social point of view because they are liable to entail high marginal costs and low marginal benefits. But this only means that producers have already made use of the low-cost/high-benefit techniques of product differentiation; it does not show that the whole process of product differentiation is wasteful.”
Answer:
Keep producing and developing etc up until the marginal benefit is zero (marginal benefit minus marginal cost); even though the marginal benefit is less than it was previously,
For maximum economic well-being firms are best to OPTIMIZE profits,
not maximize profits.
Plus, product differentiation may also be a non-numerical issue necessary for the survival of the firm in the long run. For example, we could be producing model T cars extremely efficiently, but if we didn't develop products, we'd be put out of business by other firms who do go out on a limb and spend "numerically unnecessary" costs to make their product a little more different, interesting, or better in any way. Thankfully, we have more colourful and much better, stronger, faster, more dependable and comfortable cars now because of it.
Plus, in macro-economic perspective, product differentiation provides extra jobs in research & development, engineering, marketing, etc...Extra people can get incomes and get spending power to buy products and live an enriched life and contribute revenues and profits to other producers of products. Extra employment is always a benefit that is not really "wasteful from the social point of view".
Product differentiation is NOT necessarily wasteful from "the social point of view", and not necessarily wasteful for the firm or national economy either.
Yes it does, the process is wasteful regardless, making the product Costly at the Consumer level. All costs related to the promotion of a product are seldom "cost effective" - that's an Advertising hype. I can't put in your words, but you can re-word the responses into your own. I never liked Economics after I finished my course - all it did was make me a Very Sceptical consumer, right down to my grocery shopping. The Consumer is the ultimate looser - so goes the saying "Buyer Beware"!The corporate world has become too greedy!! (my opinion)
From a socio-economic view, the process of product differentiation will never be wasteful, and in fact it's to a producer's benefit simply because we are indeed human and have that hidden "super-ego", narcissistic, desire to be better, look better, have more, more, more, more...attitude. The true question is why do we as humans desire such praise. We're not our own creator.
I’ll give the technical answer then an easy to swallow version.
The argument has merit, although counter arguments are available. The argument exhibits sound economic principles. If the process of differentiation truly gives no additional marginal utility to the consumer then this argument is true; however the reason companies try and differentiate their product is to lure more consumers to their product over the alternatives. If these practices provide no additional marginal utility (perceived or real) to the consumer those consumers have no incentive to move to that good or service and price elasticity of demand would not become more inelastic and demand would not shift; however this shift in the long run can be bad for consumers because it funnels more of the consumer surplus to the company. The company will probably raise prices to the profit maximizing point and not equilibrium.
In other words if the money the company pours into the process don’t make people enjoy the product more (and consume it more) then they will not do it, but if the company gets everyone hooked on it and raises the price they the people loose.
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Answer:
Keep producing and developing etc up until the marginal benefit is zero (marginal benefit minus marginal cost); even though the marginal benefit is less than it was previously,
For maximum economic well-being firms are best to OPTIMIZE profits,
not maximize profits.
Plus, product differentiation may also be a non-numerical issue necessary for the survival of the firm in the long run. For example, we could be producing model T cars extremely efficiently, but if we didn't develop products, we'd be put out of business by other firms who do go out on a limb and spend "numerically unnecessary" costs to make their product a little more different, interesting, or better in any way. Thankfully, we have more colourful and much better, stronger, faster, more dependable and comfortable cars now because of it.
Plus, in macro-economic perspective, product differentiation provides extra jobs in research & development, engineering, marketing, etc...Extra people can get incomes and get spending power to buy products and live an enriched life and contribute revenues and profits to other producers of products. Extra employment is always a benefit that is not really "wasteful from the social point of view".
Product differentiation is NOT necessarily wasteful from "the social point of view", and not necessarily wasteful for the firm or national economy either.
Yes it does, the process is wasteful regardless, making the product Costly at the Consumer level. All costs related to the promotion of a product are seldom "cost effective" - that's an Advertising hype. I can't put in your words, but you can re-word the responses into your own. I never liked Economics after I finished my course - all it did was make me a Very Sceptical consumer, right down to my grocery shopping. The Consumer is the ultimate looser - so goes the saying "Buyer Beware"!The corporate world has become too greedy!! (my opinion)
From a socio-economic view, the process of product differentiation will never be wasteful, and in fact it's to a producer's benefit simply because we are indeed human and have that hidden "super-ego", narcissistic, desire to be better, look better, have more, more, more, more...attitude. The true question is why do we as humans desire such praise. We're not our own creator.
I’ll give the technical answer then an easy to swallow version.
The argument has merit, although counter arguments are available. The argument exhibits sound economic principles. If the process of differentiation truly gives no additional marginal utility to the consumer then this argument is true; however the reason companies try and differentiate their product is to lure more consumers to their product over the alternatives. If these practices provide no additional marginal utility (perceived or real) to the consumer those consumers have no incentive to move to that good or service and price elasticity of demand would not become more inelastic and demand would not shift; however this shift in the long run can be bad for consumers because it funnels more of the consumer surplus to the company. The company will probably raise prices to the profit maximizing point and not equilibrium.
In other words if the money the company pours into the process don’t make people enjoy the product more (and consume it more) then they will not do it, but if the company gets everyone hooked on it and raises the price they the people loose.
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